Pass-thru taxation for business

[Qacer]

I have a question regarding pass-thru taxation for business owners. At this point, I am just reading about various types of business structures and its tax responsibilities. From what I gathered, for a sole proprietorship, if you make over $400 of profit, then you are required to pay 15.3% for self-employment taxes.

I'm trying to find answers to the following questions:

1). Does the IRS calculate the total personal income tax based on your profits before the 15.3% self-employment tax is applied? Or is the total personal income the net profit after the 15.3% tax is applied?

2). If a pass-thru taxation is supposed to be part of an individuals personal tax filing, then why does the IRS require quarterly tax payments for single-owner businesses making over $400 of profits? I had the impression that all the taxes due are paid when the person pays his/her annual tax.

3). If you have to pay quarterly tax on your single-owner business, then do you also include the deductions up to that period?

4). For quarterly tax filings, does the 15.3% tax apply to any profit over $400 up to that point? Or does the 15.3% tax apply to the total annual profit?

I'm really confused with quarterly tax filings especially estimating how much tax you owe the IRS. I'm looking for an example scenario from experience single-owner businesses on how you file your taxes and take into account your estimates and deductions.

Thanks!

 

[Sluggo]

I dont know the exact answers, so I'm not going to reply with wild guesses.

I will tell you , send in everything you can quarterly, state and federal. If you ever get behind, its very difficult to get caught up.

Your first quarterly conveniently falls on April 15th, so in addition to paying anything you might owe from the previous year, you are also scrambling to make your first quarterly payment, and then June 15 and September 15 seem to come up really quickly and you are always playing catch-up.

 

[imported_gardener]

1. You get to deduct 1/2 of your self employment tax in your adjusted Grosss income (Form 1040 line 27).

Remember, you will be filing out "Schedule C" first, it will give your your business profit, hopefully you will get some good deductions there...supplies, materials, depreciation, license, transportation, which should greatly reduce the amount that goes on 1040 Individual form.

2. You have to pay estimated quarterly tax payments because all these years while you were working for someone else they were paying quarterly if not monthly tax paments for you...now you get to do it yourself.

3. Get the form 1040-ES it has a worksheet for figuring out your estimated tax payments...and yes, take into account all your deductions.

4. Without seeing your numbers, I suggest you get the forms from last year (1040, Schedule C, Schedule SE) and run your numbers, you might as well get familiarized with the forms and what your nominal tax rate will be. Once you get a taxyear under your belt, its easy to estimate.

Small business owners have big tax advantages...many deductions on schedule C, standard deduction on 1040, pretax deduction to a solo 401k or SIMPLE or SEP IRA.

 

[Qacer]

Thanks for the replies! I've never really cared for tax calculations since I normally let an accountant handle it, but with this business stuff, my interest in this tax stuff has increased. I guess the best way to understand it is to review the IRS forms and see what numbers I need to put down.

 

[EagleKeeper]

Originally posted by: Qacer
Thanks for the replies! I've never really cared for tax calculations since I normally let an accountant handle it, but with this business stuff, my interest in this tax stuff has increased. I guess the best way to understand it is to review the IRS forms and see what numbers I need to put down.

Figure your profits for each quarter and send Uncle 1/4 of them.

Then at the end of the year, take those numbers into account when doing the final numbers.

Tax S/W will assist greatly if you choose to not pay for a CPA.

 

[Qacer]

Originally posted by: EagleKeeper
Tax S/W will assist greatly if you choose to not pay for a CPA.

Thanks! What is Tax S/W?

 

[FoBoT]

Originally posted by: Qacer

Originally posted by: EagleKeeper
Tax S/W will assist greatly if you choose to not pay for a CPA.

Thanks! What is Tax S/W?

tax software, like TaxCut Home & Business

http://shop.taxcut.com/servlet...age&productID=79382700

 

[Qacer]

Gotcha! Thanks!